TOPEKA, KS – With cryptocurrencies continuing to attract headlines, the Office of the Kansas Securities Commissioner reminds Kansas investors to be cautious about investments involving cryptocurrencies.
“Investors should go beyond the headlines and hype to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products where these virtual currencies are linked in some way to the underlying investment,” said John Wine, Securities Commissioner.
Cryptocurrencies are a medium of exchange created and stored electronically in the blockchain, a distributed public database that keeps a permanent record of digital transactions. Current common cryptocurrencies include Bitcoin, Ethereum and Litecoin.
Unlike traditional currency, these alternatives have no physical form and typically are not backed by tangible assets. They are not insured or controlled by a central bank or other governmental authority, cannot always be exchanged for other commodities, and are subject to little or no regulation.
A survey of state and provincial securities regulators by the North American Securities Administrators Association (NASAA), of which the Office of the Kansas Securities Commissioner is a member, shows 94 percent believe there is a “high risk of fraud” involving cryptocurrencies. Regulators also were unanimous that more regulation is needed for cryptocurrency to provide greater investor protection.
“The recent wild price fluctuations and speculation in cryptocurrency-related investments can easily tempt unsuspecting investors to rush into an investment they may not fully understand,” said Ken Selzer, CPA, Kansas Commissioner of Insurance. “Cryptocurrencies and investments tied to them are high-risk products with an unproven track record and high price volatility.”
The securities office is a division of the Kansas Insurance Department.
Unlike an Initial Public Offering (IPO) when a company sells stocks in order to raise capital, an Initial Coin Offering (ICO) sells “tokens” in order to fund a project, usually related to the blockchain. The token likely has no value at the time of purchase. Some tokens constitute, or may be exchangeable for, a new cryptocurrency to be launched by the project, while others may give investors a discount, or early rights to a product or service proposed to be offered by the project.
Common Cryptocurrency Concerns
Some common concerns investors should consider before investing in any offering containing cryptocurrency include the following:
Common Red Flags of Investment Fraud
Commissioner Wine also reminds investors to keep watch for these common red flags of investment fraud:
The mission of the Office of the Kansas Securities Commissioner (KSC) is to protect and inform Kansas investors; to promote integrity, fairness, and full disclosure in financial services; and to foster capital formation.